投资学10版习题答案17

CHAPTER 17: MACROECONOMIC AND INDUSTRY ANALYSIS PROBLEM SETS1. Expansionary (looser) monetary policy to lower interest rates wouldstimulate both investment and expenditures on consumer durables.Expansionary fiscal policy (i.e., lower taxes, increased government spending, increased welfare transfers) would stimulate aggregatedemand directly.2. A depreciating dollar makes imported cars more expensive andAmerican cars less expensive to foreign consumers. This shouldbenefit the U.S. auto industry.3. This exercise is left to the student; answers will vary. Successfulstudents will likely discuss an industry's profitability, leverage, and growth opportunities, especially in relation to generalmacroeconomic conditions.4. A top-down approach to security valuation begins with an analysisof the global and domestic economy. Analysts who follow a top-down approach then narrow their attention to an industry or sectorlikely to perform well, given the expected performance of thebroader economy. Finally, the analysis focuses on specificcompanies within an industry or sector that has been identified as likely to perform well. A bottom-up approach typically emphasizesfundamental analysis of individual company stocks and is largelybased on the belief that undervalued stocks will perform wellregardless of the prospects for the industry or the broader economy.The major advantage of the top-down approach is that it provides a structured approach to incorporating the impact of economic andfinancial var iables, at every level, into analysis of a company’s stock. One would expect, for example, that prospects for aparticular industry are highly dependent on broader economicvariables. Similarly, the performance of an individual company’sstock is likely to be greatly affected by the prospects for theindustry in which the company operates.5. Firms with greater sensitivity to business cycles are in industriesthat produce durable consumer goods or capital goods. Consumers of durable goods (e.g., automobiles, major appliances) are more likely to purchase these products during an economic expansion but canoften postpone purchases during a recession. Business purchases of capital goods (e.g., purchases of manufacturing equipment by firms that produce their own products) decline during a recession because demand for the firms’ end products decline s during a recession.6. a. Gold Mining. Gold traditionally is viewed as a hedge againstinflation. Expansionary monetary policy may lead to increasedinflation and thus could enhance the value of gold miningstocks.b. Construction. Expansionary monetary policy will lead to lowerinterest rates which ought to stimulate housing demand. Theconstruction industry should benefit.7. Supply-side economists believe that a reduction in income tax rateswill make workers more willing to work at current or even slightly lower (gross-of-tax) wages. Such an effect ought to mitigate cost pressures on the inflation rate.8. a. When both fiscal and monetary policies are expansive, the yieldcurve is sharply upward sloping (i.e. short-term rates arelower than long-term rates) and the economy is likely to expandin the future.9. a. When wealth is redistributed through the government’s taxpolicy, economic inefficiency is created. Tax policies shouldpromote economic growth as much as possible.10. a. The robotics process entails higher fixed costs and lowervariable (labor) costs. Therefore, this firm will performbetter in a boom and worse in a recession. For example, costswill rise less rapidly than revenue when sales volume expandsduring a boom.b. Because its profits are more sensitive to the business cycle,the robotics firm will have the higher beta.11. a. Housing construction (cyclical but interest-rate sensitive): (iii)Healthy expansionb. Health care (a noncyclical industry): (i) Deep recessionc. Gold mining (counter-cyclical): (iv) Stagflationd. Steel production (cyclical industry): (ii) Superheated economy12. a. Oil well equipment: Relative decline (Environmental pressures,decline in easily developed new oil fields)b. Computer hardware: Consolidationc. Computer software: Consolidationd. Genetic engineering: Start-upe. Railroads: Relative decline13. a. General Autos. Pharmaceuticals are less of a discretionarypurchase than automobiles.b. Friendly Airlines. Travel expenditure is more sensitive to thebusiness cycle than movie consumption.14. The index of consumer expectations is a useful leading economicindicator because, if consumers are optimistic about the future,they will be more willing to spend money, especially on consumerdurables, which will increase aggregate demand and stimulate theeconomy.15. Labor cost per unit is a useful lagging indicator because wagestypically start rising only well into an economic expansion. At the beginning of an expansion, there is considerable slack in theeconomy and output can expand without employers bidding up theprice of inputs or the wages of employees. By the time wages start increasing due to high demand for labor, the boom period hasalready progressed considerably.16. The expiration of the patent means that General Weedkillers willsoon face considerably greater competition from its competitors. We would expect prices and profit margins to fall and total industry sales to increase somewhat as prices decline. The industry will probably enter the consolidation stage in which producers areforced to compete more extensively on the basis of price.17. a. Expected profit = Revenues – Fixed costs – Variable costs= $120,000 – $30,000 – [(1/3)$120,000] =$50,000b. Fixed costs $30,000DOL 11 1.60Profits $50,000=+=+=c. If sales are only $108,000, profit will fall to:$108,000 – $30,000 – [(1/3) $108,000] = $42,000 This is a 16% decline from the forecasted value.d. The decrease in profit is 16% = DOL × 10% drop in sales.e. Profit must drop more than 100% to turn negative. For profit tofall 100%, revenue must fall by:%5.6260.1%100DOL %100== Therefore, revenue would be only 37.5% of the original forecast. At this level, revenue will be: 0.375 $120,000 = $45,000f. If revenue is $45,000, profit will be:$45,000 – $30,000 – (1/3)$45,000 = $018. Equity prices are positively correlated with job creation or longerwork weeks, as each new dollar earned means more will likely bespent. High confidence presages well for spending and stock prices.19. a. Stock prices are one of the leading indicators. One possibleexplanation is that stock prices anticipate future interest rates, corporate earnings, and dividends. Another possible explanation is that stock prices react to changes in the other leading economicindicators, such as changes in the money supply or the spreadbetween long-term and short-term interest rates.20. a. Industrial production is a coincident indicator; the others areleading.21. b. If historical returns are used, the arithmetic and geometricmeans of returns are available. The geometric mean is preferred for multiperiod horizons to observe long-term trends. An alternative to the equity risk premium is to use a moving average of recenthistorical market returns. This will reveal a low expected equity risk premium when times have been bad, which is contrary toinvestor expectations. When using historical data, there is atrade-off between long and short time spans. Short time spans are helpful to reduce the impact of regime changes. Long time spansprovide better statistical data that are less sensitive.22. a. Foreign exchange rates can significantly affect thecompetitiveness and profitability for a given industry. Forindustries that derive a significant proportion of sales viaexports, an appreciating currency is usually bad news because itmakes the industry less competitive overseas. Here, theappreciating French currency makes French imports more expensive in England.23. Determinants of buyer power include buyer concentration, buyervolume, buyer information, available substitutes, switching costs, brand identity, and product differences. Point 1 addressesavailable substitutes, Point 2 addresses buyer information, andPoint 4 addresses buyer volume and buyer concentration. Point 3,which addresses the number of competitors in the industry, andPoint 5, new entrants, may be factual statements but do not support the conclusion that consumers have strong bargaining power.24. a. Product differentiation can be based on the product itself, themethod of delivery, or the marketing approach.25. A firm with a strategic planning process not guided by its genericcompetitive strategy usually makes one or more of the followingmistakes:1.The strategic plan is a list of unrelated action itemsthat do not lead to a sustainable competitive advantage.2.Price and cost forecasts are based on current marketconditions and fail to take into account how industrystructure will influence future long-term industryprofitability.3.Business units are placed into categories such as build,hold, and harvest; with businesses failing to realizethat these are not business strategies, but rather themeans to achieve the strategy.4.The firm focuses on market share as a measure ofcompetitive position, failing to realize that marketshare is the result and not the cause of a sustainablecompetitive position.Smith’s observations 2 and 3 describe two of these mistakes andtherefore do not support the conclusion that the North Winery’sstrategic planning process is guided and informed by their generic competitive strategy.CFA PROBLEMS1. a. Lowering reserve requirements would allow banks to lend out ahigher fraction of deposits and thus increase the money supply.b. The Fed would buy Treasury securities, thereby increasing themoney supply.c. The discount rate would be reduced, allowing banks to borrowadditional funds at a lower rate.2. a. Expansionary monetary policy is likely to increase theinflation rate, either because it may overstimulate the economyor ultimately because the end result of more money in theeconomy is higher prices.b. Real output and employment should increase in response to theexpansionary policy, at least in the short run.c. The real interest rate should fall, at least in the short-run,as the supply of funds to the economy has increased.d. The nominal interest rate could either increase or decrease. Onthe one hand, the real rate might fall [see part (c)], but theinflation premium might rise [see part (a)]. The nominal rateis the sum of these two components.3. a. The concept of an industrial life cycle refers to the tendencyof most industries to go through various stages of growth. Therate of growth, the competitive environment, profit margins andpricing strategies tend to shift as an industry moves from onestage to the next, although it is generally difficult toidentify precisely when one stage has ended and the next begun.The start-up stage is characterized by perceptions of a largepotential market and by a high level of optimism for potentialprofits. However, this stage usually demonstrates a high rateof failure. In the second stage, often called stable growth orconsolidation, growth is high and accelerating, the markets arebroadening, unit costs are declining, and quality is improving.In this stage, industry leaders begin to emerge. The thirdstage, usually called slowing growth or maturity, ischaracterized by decelerating growth caused by factors such asmaturing markets and/or competitive inroads by other products.Finally, an industry reaches a stage of relative decline inwhich sales slow or even decline.Product pricing, profitability, and industry competitivestructure often vary by stage. Thus, for example, the firststage usually encompasses high product prices, high costs (R&D,marketing, etc.) and a (temporary) monopolistic industrystructure. In stage two (stable growth), new entrants begin toappear and costs fall rapidly due to the learning curve. Pricesgenerally do not fall as rapidly, however, allowing profitmargins to increase. In stage three (slowing growth), growthbegins to slow as the product or service begins to saturate themarket, and margins are eroded by significant price reductions.In the final stage, industry cumulative production is so highthat production costs have stopped declining, profit marginsare thin (assuming competition exists), and the fate of theindustry depends on replacement demand and the existence ofsubstitute products/services.b. The passenger car business in the United States has probablyentered the final stage in the industrial life cycle becausenormalized growth is quite low. The information processingbusiness, on the other hand, is undoubtedly earlier in thecycle. Depending on whether or not growth is still accelerating, it is either in the second or third stage.c. Cars: In the final stages of the life cycle, demand tends to beprice sensitive. Thus, Universal cannot raise prices withoutlosing volume. Moreover, given the industry’s maturity, coststructures are likely to be similar across all competitors, andany price cuts can be matched immediately. Thus, Universal’s car business is boxed in: Product pricing is determined by the market, and the company is a “price-taker.”Idata: Idata should have much more pricing flexibility given itsearlier stage in the industrial life cycle. Demand is growingfaster than supply, and depending on the presence and/or actionsof an industry leader, Idata may set prices high to maximizecurrent profits and generate cash for product development or setprices low in an effort to gain market share.4. a. A basic premise of the business cycle approach to investmenttiming is that stock prices anticipate fluctuations in thebusiness cycle. For example, there is evidence that stockprices tend to move about six months ahead of the economy. Infact, stock prices are a leading indicator for the economy.Over the course of a business cycle, this approach to investingwould work roughly as follows. As the investor perceives thatthe top of a business cycle is approaching, stocks purchasedshould not be vulnerable to a recession. When the investorperceives that a downturn is at hand, stock holdings should belightened with proceeds invested in fixed-income securities.Once the recession has matured to some extent, and interestrates fall, bond prices will rise. As the investor perceivesthat the recession is about to end, profits should be taken inthe bonds and reinvested in stocks, particularly those incyclical industries with a high beta.Generally, abnormal returns can be earned only if these assetallocation switches are timed better than those of otherinvestors. Switches made after the turning points may not leadto excess returns.b. Based on the business cycle approach to investment timing, theideal time to invest in a cyclical stock such as a passengercar company would be just before the end of a recession. If therecovery is already underway, Adam’s recommendation would betoo late. The equities market generally anticipates the changesin the economic cycle. Therefore, since the “recovery isunderway,” the price of Universal Auto should already reflectthe anticipated improvements in the economy.5. a. The industrywide ROE is leveling off, indicating that theindustry may be approaching a later stage of the life cycle.Average P/E ratios are declining, suggesting thatinvestors are becoming less optimistic about growthprospects.Dividend payout is increasing, suggesting that the firm sees less reason to reinvest earnings in the firm. There maybe fewer growth opportunities in the industry.Industry dividend yield is also increasing, even though market dividend yield is decreasing.b. Industry growth rate is still forecast at 10% to 15%,higher than would be true of a mature industry.Non-U.S. markets are still untapped, and some firms are now entering these markets.Mail order sale segment is growing at 40% a year.Niche markets are continuing to develop.New manufacturers continue to enter the market.6. a. Relevant data from the table supporting the conclusion that theretail auto parts industry as a whole is in the maturity stageof the industry life cycle are:The population of 18–29 year olds, a major customer base for the industry, is gradually declining.The number of households with income less than $35,000, another important consumer base, is not expanding.The number of cars 5 to 15 years old, an important end market, has experienced low annual growth (or actual decline insome years), so the number of units that potentially need partsis not growing.Automotive aftermarket industry retail sales have been growing slowly for several years.Consumer expenditures on automotive parts and accessories have grown slowly for several years.Average operating margins of all retail autoparts companies have steadily declined.b. (i) Relevant data from the table supporting the conclusionthat Wigwam Autoparts Heaven, Inc. (WAH) and its principalcompetitors are in the consolidation stage of their life cycleare:Sales growth of retail autoparts companies with 100 ormore stores have been growing rapidly and at anincreasing rate.Market share of retail autoparts stores with 100 or more stores has been increasing but is still less than 20 percent,leaving room for much more growth.Average operating margins for retail autopartscompanies with 100 or more stores are high and rising.(ii) Because of industry fragmentation (i.e., most of the marketshare is distributed among many companies with only a few stores),the retail autoparts industry apparently is undergoing marketinginnovation and consolidation. The industry is moving toward the“category killer” format, in which a few major companies controllarge market shares through proliferation of outlets. The evidencesuggests that a new “industry within an industry” is emerging inthe form of the “category killer” large chain-store company.This industry subgroup is in its consolidation stage (i.e., rapidgrowth with high operating profit margins and emerging marketleaders) despite the fact that the industry is in the maturitystage of its life cycle.7. a. (iii)b. All of the abovec. (iii)。